By Jorge Liboreiro
Let’s pick up where we left off: Chinese electric vehicles.
As you all know, last Friday member states failed to agree on a high-stakes proposal to slap steep tariffs on China-made EVs, prompting the European Commission to break the impasse in favour of its trade policy. This means the duties will, in all likelihood, enter into force by the end of the month.
Beijing initially reacted with a predictable answer, “firmly” opposing the decision and urging Brussels to continue negotiating and achieve a solution that could avert the introduction of permanent tariffs.
A few days later, the story took a new turn.
On Tuesday, the Commerce Ministry announced that it would move ahead with its “anti-dumping” investigation and apply provisional duties on EU-made brandies, arguing China’s liquor industry was under “threat of substantial damage.” European distillers will now have to make deposits at Chinese customs, ranging between 30.6% to 39% of the total value.
The reason for the retaliation wasn’t hard to figure out. Who’s Europe’s leading exporter of luxury drinks? France, whose cognac is coveted around the world and represents a reliable source of revenue. And who was the main advocate of the Commission’s probe into Chinese EVs? Also France, the most vocal promoter of the “strategic autonomy” concept.
France was, in fact, one of the 10 countries that last week voted in favour of the EV duties, together with Bulgaria, Denmark, Estonia, Ireland, Italy, Lithuania, Latvia, the Netherlands and Poland. Despite an intense lobbying campaign from Chinese (and German) officials, Paris never wavered in its resolve.
The Commission, which had previously called the brandy inquiry “unwarranted” and demanded its termination, reacted with palpable fury to Beijing’s announcement and vowed to “robustly” challenge the tit-for-tat measures at the World Trade Organization (WTO).
“The EU takes with utmost seriousness any unfair use of trade defence instruments against any sector of our economy. Abuse of trade defence for inappropriate reasons is a clear breach of WTO rules,” the executive said.
“The Commission will always stand firmly and fearlessly on the side of EU producers, industry, open and fair trade, and a global level playing field.”
Taking somebody to the WTO is rather commonplace. After all, Brussels has already brought China’s to the international body over its probe into EU dairy products, arguing it’s based on “questionable allegations and insufficient evidence.” Remarkably, Beijing has used similar rhetoric to undermine the EV inquiry, saying the Commission “artificially constructed and exaggerated the so-called subsidies.”
These antagonistic positions spell bad luck for the concentrated push to find a mutually acceptable solution to the car dispute. In essence, negotiators have been tasked with reaching a common ground while inhabiting parallel dimensions. It’s unsurprising the only sings we have got so far form the talks are all negative.
According to Reuters, the Commission rejected an offer from the Chinese government to sell EVs in Europe at a minimum price of €30,000. Despite the setback, both sides are taking a fresh look at the option of price undertakings, which is basically Beijing’s last hope to avoid the steep tariffs.
But the Commission doesn’t see a minimum price as a goal in and of itself. The executive has said any offer needs to address the “injurious effects” of the subsidies and be “effectively monitored and enforced.” Given that China has, from the very beginning, denied the existence of subsidies (and therefore, refused to remove them), it’s difficult to imagine a solution that can placate the Commission’s concerns and satisfy the Communist Party’s industrial ambitions at the same time.
It’s perhaps the awareness of this quandary that pushed Beijing to launch retaliatory measures, an implicit acknowledgment that negotiations are, sooner or later, bound to collapse. The Chinese reprisals against brandy exports (and reports of an imminent EU probe into Chinese hardwood plywood) have made the prospect of a full-blown trade war appear increasingly realistic, even if the gloves are not expected to come off until talks officially come to an end, something that could happen as soon as 30 October.
In recent weeks, experts have dampened the odds of an all-out conflict, arguing Beijing can ill afford to inject further pain on its economy, which is reeling from a deep real estate crisis and lethargic consumer demand. The same could be said about the EU, which is dealing with the shock effects of having an actual war at its doorstep. Still, many would argue that doing nothing against China’s practices now could be more devastating in the long term.
It will be up to both sides to decide how far they want to take their feud and how much pain they are willing to tolerate.
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Who’s ready for a trade war?
